‘Make in India’ is hit by government schizophrenia

The government is suffering from schizophrenia. Its Make in India campaign aims to convince global and Indian manufacturers that India is a business paradise. But recent measures (on tax, drug controls and cotton seeds) suggest the government is arbitrary, populist and scornful of the sanctity of contracts.

Finance minister Jaitley’s Budget speech was praised for aiming to ease tax disputes and settle old cases by paying just the tax demand, waiving penalty and interest (which often exceed the tax demand). But Cairn and Vodafone, whose tax cases are the biggest, did not react: they have gone for arbitration under the Indo-UK Investment Agreement.

Last week, the income-tax department slapped a demand for Rs 20,495 crore on Cairn. Jaitley says the Cairn case is an unfortunate legacy he inherited from the UPA, and the courts must decide. But when the Cairn case is already under arbitration, why issue new tax notices?

In February, Vodafone was told by the tax authorities to pay Rs 14,300 crore or face seizure of assets. This case is also under arbitration. Why make such threats when a legal process is on? This deepens the impression that the government is more interested in managing headlines than real change.

Cairn has filed a counter-suit against the government claiming damages of a whopping $600 million for the loss in the value of its holdings. Let’s wait for the verdict. But one thing is clear. India needs a system enabling individuals and corporations to demand full compensation for damage done by arbitrary, unwarranted government action. Many leftists demand property rights for tribals or displaced persons even while cheering the denial of such rights to businesses. Sorry, but equality before the law is needed by all.

The government has just banned 344 fixed drug combinations (FDCs) deemed to be “irrational”. For decades, activists have complained, rightly, that some FDCs have no therapeutic benefits and are fooling patients. Many irrational
combinations have been eliminated in the past. But note that all these are prescribed by doctors. Activists say many doctors are in cahoots with drug companies. I can only say it makes no sense to target the companies but not the doctors.

D G Shah, secretary-general of the Indian Pharmaceutical Alliance, says the drug industry will happily cooperate with the government on ending irrational combinations, but there is no meaningful dialogue. The Kokate Committee examined 6,220 FDCs and deemed 963 to be irrational. The committee report has not been made public or shared with the impugned companies. How and why were 344 combinations chosen for banning? Nobody knows. The drug companies have gone to court.

Shah says the ban will kill one-tenth of the industry’s sales. Reports suggest another 400 may be banned. Yet nobody knows the basis of selection. India already has extensive drug price controls and curbs on drug patenting excesses. These can be justified as public health measures. But Make in India or improving the ease of doing business, two big Modi themes, require transparency, and a constructive dialogue with producers to avoid court disputes.

Price controls have long existed on cotton seeds, notably the Bt cotton varieties created by Monsanto and its Indian partners. But last week the government cut the royalty paid by Indian seed companies for using Monsanto’s patented seed traits from Rs 163 to Rs 43 per packet, with the benefit being passed on to farmers. The corner-stone of any market economy is that contracts must be considered sacred. But the new ruling nullifies Monsanto’s contracts with its Indian seed partners.

Global rules allow price controls where public health issues are concerned, but none are involved here. The government certainly needs to relieve distress among cotton farmers hit by drought and pests, but that relief should come from government budgets. The change in royalty is hardly 1-2% of a farmer’s production costs, so its impact on farm distress will be negligible. But it undercuts the entire commercial basis of R&D by seed companies.

Monsanto has made an ill-considered threat to quit India. This can only spur nationalist counter threats. Junior agriculture minister Sanjeev Balyan says Monsanto is welcome to leave since indigenous Bt cotton varieties are being developed by Indian scientists. Really? Then why not produce indigenous seeds at a much lower price and force Monsanto to follow suit?

Balyan’s nationalist prattle reminds one of George Fernandes, industry minister in 1978, who boasted about throwing Coca Cola and IBM out of India for not following arbitrary new rules.

Dear Narendra Modi, this is not just a traits royalty issue. Do you want India to be a hub of global agricultural research, as part of your Make in India policy? If not, say so: that will provide more clarity and less hypocrisy.